How upcoming changes to Inheritance Tax rules could affect you

There are several new IHT rules coming into play between April 2025 and 2030.

Inheritance tax is often considered a confusing topic, and with several new changes to Inheritance Tax rules coming into effect between April 2025 and 2030, it’s perfectly understandable that many may be feeling unclear about what these mean and how they could affect them and their loved ones.

While we’ve already offered some guidance about what the Autumn Budget announcements meant for inheritance tax in this blog, we know there is likely to still be some uncertainty.

With this in mind, we’ve broken down the changes to Inheritance Tax rules (and details on the frozen thresholds) into more digestible chunks.

In short, what is happening to inheritance tax?

Between April 2025 and 2030 there are four key updates coming that relate to inheritance tax (also known as IHT), all of which are a bit different.

In summary, the upcoming changes to inheritance tax are:

• April 2025: Non-dom status ends, and a new residency-based taxation is introduced.
• April 2026: Farms and businesses valued above £1m face IHT for the first time.
• April 2027: Pensions become taxable under IHT for the first time.
• April 2028-30: IHT thresholds remain frozen, pulling more estates into taxation.

Not all changes will affect everyone, so digging into each one is important to help you understand if you could be affected.

What will these changes mean for the average household?

Well, broadly speaking the changes mean that more people (and their estates) are likely to become eligible for IHT when they pass away.

Official reports indicate that only about 4-5% of estates (one in twenty) are eligible for inheritance tax at the moment, and these changes mean that this figure is set to be 6% by the end of 2025, and as high as 10% (or one in ten) by 2030.

These changes are not generally popular, and the government is already making a tidy sum from IHT – income generated from it is already around £6 billion a year, and it’s not unrealistic to say it’ll topple the £10 billion mark by 2030.

Naturally, everyone affected will want to keep their estate’s potential IHT bill as low as possible, but with various previous loopholes closing, it’s not going to be easy, so preparing in advance is key.

What are the April 2025 IHT rule changes?

This rule change only really affects people who have lived abroad for several years recently (and have assets abroad still, like a home), or only more recently moved to live in the UK (and again perhaps still have assets elsewhere).

If you’re a long-term UK citizen and taxpayer, who hasn’t lived abroad and doesn’t have assets abroad, this won’t affect you.

In essence, the rule change means that people with ‘non-domiciled (non-dom) status’ will no longer be exempt from IHT on their foreign assets.

Instead, taxation will be based on residence rather than domicile.

As part of this, a new “Long-Term Resident” (LTR) rule is being introduced.

Anyone who has been a resident of the UK for 10 of the last 20 years will be subject to IHT on their worldwide assets, while non-LTRs will only be taxed on UK assets.

Offshore trusts that were previously exempt will now be subject to periodic 10-year and exit IHT charges, if the settlor is an LTR.

However, trusts created before 30 October 2024 (Budget day) will maintain some protections, avoiding double taxation risks.

LTRs who are leaving the UK will still be taxed on worldwide assets for up to 10 years.

If their UK residence lasted 10-13 years, their IHT exposure remains for only 3 years, increasing up to 10 years (for those resident for 20+ years). Essentially, the inheritance tax liability of individuals leaving the UK will gradually reduce over time.

There is also a ‘New Arrivals Benefit’ though, with a 4-year foreign income and gains tax exemption for new UK residents (who haven’t been UK-tax resident in 10 years).

Overall, the change is expected to impact 9,300 individuals a year, who will now be taxed on their worldwide income, losing domicile-related tax perks.

Anyone impacted should seek professional tax advice to prepare for the changes.

Those planning to move to or leave the UK should carefully assess how their assets will be taxed post-April 2025.

There is more information over on the UK government website about this non-dom status inheritance tax rule change.

What are the April 2026 IHT rule changes?

This rule change only really affects people who are expecting to inherit a business or agricultural property worth over £1 million after 2026.

Essentially, from April 2026, changes to agricultural property and business relief will take effect, impacting inheritance tax on family farms and businesses.

Families will still be able to pass on up to £1 million in agricultural and business assets tax-free, and the first £325,000 of inherited assets (above the £1 million threshold) also remains tax-free for most, bringing the total untaxed amount to £1.325m.

However, assets above this will now pay inheritance tax for the first time.

Previously, small farms and businesses could be passed down through generations without any IHT liability.

They will receive 50% relief though, meaning an effective tax rate of 20% applies to the excess (rather than the standard 40%).

For married farmers, existing exemptions will still apply, allowing assets to be passed tax-free to a spouse or a main residence to children or grandchildren—potentially raising the total tax-free amount to £3 million.

About 75% of claims are expected to remain unaffected – the government expects the changes to impact only 500 of the wealthiest farms each year.

However, the NFU estimates up to 70,000 farms could be affected overall. There is more information and sample IHT bills for different farm ‘scenarios’ over on the NFU website.

Discussing the changes with a financial advisor is recommended, to see if and how to make the most of any available exemptions.

What are the April 2027 IHT rule changes?

This rule change is pretty significant and is likely to mean that around 10,500 more estates a year pay IHT from April 2027, and 38,500 estates will face higher IHT bills due to this reform. So, what is it?

Well, from April 2027, pensions will no longer be exempt from inheritance tax.

Currently, pensions are inheritance tax free and are not counted as part of a person’s estate.

However, from April 2027, ‘defined contribution pensions’ will be included in IHT calculations and be taxed at the standard rate of 40%.

To clarify, the ‘estate’ simply means all the assets, like a house, investments or valuables, that someone owns when they pass away.

Often pensions are passed onto a husband or wife, but if you own your own home, then when your defined contribution pension is added onto this, it might now be more than the amount you’re able to pass on free of inheritance tax. And that could mean inheritance tax has to be paid when you pass away or when your husband or wife passes away.

There is more information about this on the government website.

As it stands, experts are often recommending that those expecting to be affected explore spending their pension funds first to reduce their taxable assets.

They may also want to look into gifting money while alive to help reduce their IHT exposure. Again, it is worth discussing these options with a financial advisor first as there are several gifting rules to consider too.

What are the April 2028 IHT rule changes?

While this one doesn’t seem big on the surface – as essentially there is no change – the lack of change has consequences, as it means that inheritance tax will affect more people.

The Nil-Rate Band (NRB), which is the standard IHT threshold, is now set to remain frozen at £325,000 (it has been unchanged since 2009).

Introduced in 2017, the extra allowance of the Residence Nil-Rate Band (RNRB) has helped reduce IHT on a family home passed to direct descendants (e.g., children, grandchildren).

The Residence Nil-Rate Band (RNRB) also now stays at £175,000, rather than rising as many had hoped.

The consequence of this is that, as property values continue to go up, more estates will cross these IHT thresholds, meaning an estimated 0.4% more estates will be subject to IHT by 2030.

Ultimately, beneficiaries will receive less inheritance due to higher IHT tax bills.

Again, there is more information about this over on the government website.

Again, this should be discussed with a financial advisor, but gifting money while alive may help reduce IHT exposure in the future.

Anyone can still give away up to £3,000 a year and pay no tax. This is known as the annual exemption. If unused, this allowance can be carried over to the following year, up to a maximum of £6,000.

However, if you make gifts outside of these boundaries within seven years before death, these could also reduce or eliminate your nil-rate band, meaning more of your estate may be taxed. It is undoubtedly a tricky balancing act!

What are the April 2030 IHT rule changes?

Well, nothing just yet so watch this space!

That said, while it is currently unconfirmed, the Nil-Rate Band and Residence Nil-Rate Band may increase after years of being frozen.

If raised, this could reduce the number of estates subject to IHT.

However, given recent changes made (to increase the number of estates subject to IHT), any alteration to the thresholds is unlikely to benefit many households.

What can I do to reduce my IHT liability?

Speaking to a financial advisor about the changes, how they could affect you, and how to plan for these is always recommended.

There may be some small changes you can make, such as following gifting rules, spending pension income first, or moving assets into trusts that could help, but everyone’s circumstances are difference, so there is no single recommendation that will work for everyone.

You can also use our handy calculator to see what your IHT liability may be.

What happens if my loved ones are facing a big IHT bill they can’t afford?

Unfortunately, this is likely to be situation more households find themselves in, as more estates become liable for IHT in the next few years.

There is help at hand though. Here at Level we can offer an Estate Expense and Inheritance Tax (IHT) Loan, which helps unlock estate funds to pay for IHT and other Testamentary Expenses.

Ultimately, these loans are designed to ease the burden of estate administration, reduce your financial responsibility and help prevent delays to the probate process.